Preamble

The House met at Eleven o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

NO PAR VALUE SHARES

11.5 a.m.

Colonel O. E. Crosthwaite-Eyre: I beg to move,
That this House welcomes the report of the Ledge Committee on shares of no par value; and requests Her Majesty's Government to implement its recommendations.
If one forgets the methods that are open to temporary finance of any business—by temporary finance, I mean overdrafts at the banks and unsecured notes redeemable within a few years—there are only two ways in which a company can raise money. The first is by an issue of some fixed stock for prior charge either by way of mortgage on debenture or preference shares, and for these the person who subscribes makes quite certain that, in exchange for a fixed and limited dividend, he obtains security. He will only lend his money when he knows that the assets of the company cover and more than cover the risks he is undertaking by lending his money.
That is quite different from the other arrangement in which people are asked to subscribe for ordinary shares, which often and rightly are called risk capital. Those shares are very different from the first I have mentioned. In dividend they rank behind fixed shares. If the company does not prosper, they will get no return and, if the company fails, they may lose their money and find all the assets of the company have been swallowed up in meeting the charges on the fixed shares.
I am sorry, Mr. Speaker, I cannot continue.

Mr. Speaker: Does anyone rise to second the Motion?

11.7 a.m.

Mr. John Arbuthnot: I beg to second the Motion.
I am sure all hon. Members will wish to sympathise with my hon. and gallant

Friend the Member for New Forest (Colonel Crosthwaite-Eyre) at having had to leave us.
This is an extremely complicated and difficult topic and I think my hon. and gallant Friend has done a real service, not only to this House but also to the country, in taking this opportunity of bringing it once again before public attention. One thing which strikes me, particularly in looking round the industrial field, both here and in the United States, is the difference in attitude that there is on the problems of employer and employee, between capital and labour, here and on the other side of the Atlantic.
Somehow, the United States seems to have been more successful in bringing about that realisation of the unity between capital and labour that is such an essential part of the successful carrying out of industrial enterprise. There, for example, one finds that if a business gets into difficulty it may well be that the unions involved in that business come in to help and to support financially that business through its difficult times.
Here we do not seem fully to have learned that lesson, yet I think that is coming. I think we are reaching a greater understanding between capital and labour and reaching a position in which there will be greater unity of purpose, which will be of immense advantage to this country. It is only so long as we realise that we are all in the same boat together and all working together for the same objectives that we shall be able to achieve the maximum export and the maximum production which is so necessary for our national survival.
This is particularly necessary in our case, where we depend so much upon our industrial production and where we do not produce within our shores all the raw materials necessary to keep the country going on its own.
One of the difficulties we have been finding here is that there is apt to be built up an attitude of suspicion between one side and the other. When it is suggested that shares of no par value would be a good thing, there is a tendency for the trade union movement, in all sincerity, to suspect that there is a snag somewhere and that somebody is trying to "pull the wool over their eyes" and to get something out of the national cake


which would not otherwise be possible. I want to say a word or two about that, because I hope that hon. Members, on all sides, would acquit my hon. and gallant Friend the Member for New Forest and myself of any wish of that nature.
Our purpose in bringing the Motion before Parliament today is to try to remove causes of misunderstanding. We feel that with the law as it stands, with shares of no par value illegal, there may well be totally unnecessary misunderstandings between both sides in industry. A shareholder has a right to his proportion, according to the number of shares he holds, of the equity of a business. That is what the word "shareholder" means; he owns a share. Whether the shares are called £1 shares, 5s. shares or any other form of shares, the fundamental position remains that the shareholder owns a share, nothing more and nothing less. 
To put an artificial tag value on to that share which bears little relation to reality is thoroughly misleading. In the first place, the value of that share which its owner has in the company depends upon the success of the board and of the business in doing the job that it has set out to do. Some businesses are more successful than others, and in a matter of only days or months from the time when the initial tag is put upon the value of the share it can become inaccurate. The competence of the board and of the business is one thing. An alteration in the value of the £ may influence the difference in the tag value which is put on a share and its true value. Today, as compared with its value in, for example, 1914, the value of the £ is something like 5s. 9d.
If one had started to build up a business in 1914 with a capital of £100, and supposing that the business was successful in maintaining its asset position unimpaired in real terms, the true capital value behind that business today would be about four times its initial value in 1914. Unless the business had expanded its capital, however, the shares would still be tagged with the unrealistic and notional value of £1, whereas the real value of the shares would be nearer £4. 
Another matter that is bound to alter the true value—the asset value—of the shares is the encouragement at present

being given by the Chancellor of the Exchequer to all businesses to plough back as much of their profits as possible into the business. Therefore, from a logical point of view, it has certainly been proved, and the Gedge Committee found it to be proved, that the tagging of a particular denomination artificially to a share is misleading. In some cases, it is apt to discourage people from realising what are the true assets behind the company, and in other cases it is apt to make people think that the assets are much greater than they are. 
Another instance in which the tag value on a share can be misleading is for example, where a £1 share has been issued at £5. There is no indication to the shareholder who subsequently buys such a share that the real asset value behind the share is £5 or possibly more. For these reasons, we believe that something must be done to enable companies to issue no par value shares in order to remove this source of genuine misunderstanding amongst people who do not realise how these things work. 
It is sometimes suggested that the object of a step of this nature is to throw dust in people's eyes. Hon. Members opposite are often allergic to what are called bonus shares, and perhaps it would be as well at this stage for me to say a word about them. From the shareholder's point of view, bonus shares are of value neither more nor less than the piece of paper on which they are written. The actual share or size of slice of the total cake which the shareholder possesses is not altered in any way by the issue of bonus shares.
If a company starts off with an asset value of, say, £200 and an equity capital of £100, the share of each individual shareholder is at this point worth £2. If the company doubles its nominal capital by a free scrip issue and issues bonus shares of £1, one for each share originally held, the impression is gained that the shareholders obtain something, whereas, in fact, they receive nothing at all. 
Each share, now split into two, belonging to each shareholder still remains at the value of £2. There is, therefore, a good deal of misleading thought on the question of the issue of bonus shares, and by legalising shares of no par value we would remove the necessity for this form


of equating the nominal capital of a company to the actual capital employed in the business.
The topic of shares of no par value found a place in the Report of the Committee on Company Law Amendment. presided over by the then Sir Lionel Cohen, now Lord Cohen. In the Cohen Report it was considered that there were respectable arguments in favour of the issue of shares of no par value. Hon. Members who are interested in following the line of thought of the Cohen Report will find these observations in paragraphs 17 and 18, from which I should like to quote one short sentence:
 It is argued that to attach a nominal value to a share is misleading as, except perhaps immediately after the formation of the company, and not always then, the nominal value bears no relation to the real value of the share.
That is very true. 
To proceed chronologically, on 29th February, 1952, my hon. Friend the Member for Middleton and Prestwich (Sir J. Barlow) introduced his Companies Bill, the purpose of which was to legalise shares of no par value. In reply to that debate, the Government spokesman was entirely sympathetic with the principle of the Bill, although the details of drafting, on which my hon. Friend and I had cooperated, contained snags which made it impossible for the Bill to be given a Second Reading. Arising out of the action of my hon. Friend and out of the Bill which he introduced, the Government decided to set up a Committee under the Chairmanship of Mr. Montagu Gedge, Q.C. This is the Committee which reported in January, 1954. 
A formidable body of evidence was given before this Committee from professional people and others cognisant of and interested in these subjects. It was a formidable array in favour of the change. The Federation of British Industries gave evidence, the Association of British Chambers of Commerce, the National Union of Manufacturers, the Issuing Houses Association, the Association of Investment Trusts, and the British Insurance Association, to mention only a few. So that if anybody is thinking of suggesting that there is not a large body of opinion for an alteration of the type we should like to see, it is, I think, refuted by the strong evidence that was

taken before the Gedge Committee in favour of a change in the law to permit shares of no par value.
After having taken its evidence Mr. Gedge's Committee found by a majority in favour of a change being allowed in the law. There was a minority Report, signed by one member only, which took the contrary view. When that Gedge Report came out the Economist, of 3rd April, commented:
 The reason is with the majority but the vehemence is with the minority.
The fact is that the majority Report had a most favourable reception not only from the national but also from the professional and technical Press. 
Next we come to 25th January last year, when a debate took place in another place, a debate in which the majority was very definitely in favour of a change in the law. The Government spokesman there said:
 The Government are, in principle, favourably disposed to legislation on the lines recommended in the majority Report of the Gedge Committee."—[OFFICIAL REPORT, House of Lords, 25th January, 1955; Vol. 190, c. 710.]
It is with a view to reminding the Government of the desirability of such legislation as soon as possible that my hon. and gallant Friend the Member for New Forest and I bring this Motion today.
We feel that it is important from the national point of view that this topic should be kept before the public and that legislation should be passed as soon as possible, but particularly so in circumstances as they are today, in which increasing numbers of people are becoming investment-conscious, are themselves investing their small savings either directly or indirectly in industry. We feel that to remove any source of possible misunderstanding is in the general national interest.
I would refer for a moment to some of the difficulties that may be involved from the Government's point of view. I know those difficulties perfectly well. The subject is complicated and technical. It falls, I think, into two parts. From the legislative point of view it will need a Companies (Amendment) Bill, which is comparatively simple and straightforward; but this will need to be followed by adaptations in a subsequent Finance Bill. I do not think that those are insuperable obstacles.
My hon. and gallant Friend and I fully accept that the coming into force of the Companies (Amendment) Bill would have to be postponed to an appointed day, until the necessary changes in the subsequent Finance Bill had been made. We should have no objection to that at all. What we wish to see is a Companies (Amendment) Bill placed on the Statute Book as an earnest of the Government's intentions of taking action on the lines indicated in the Government's statement in another place on 25th January last year.

11.25 a.m.

Mr. Norman Pannell: I have much pleasure in supporting the Motion, as I think that the introduction of shares of no par value would go a long way to removing the distortion in the mind of certain sections of the public regarding the purpose and function of capital. I think that that was best expressed by the Chartered Institute of Secretaries in evidence before the Gedge Committee, when it said:
 No par value shares afford a more realistic approach to appraisal of profits in relation to the assets employed in the business and avoid the misunderstanding and uninformed criticism which arise when profits and dividends are measured by reference to the yardstick of nominal value.
This misconception in the public mind is fairly general. Only those with an intimate knowledge of company accounts and company law can fully appreciate the business of the payment of dividends. It is quite clear that that misconception exists in the minds of trade union representatives, because before the Gedge Committee the trade union representative expressed the view that workpeople were likely to be suspicious of any dividend which was not expressed as a percentage and he said that if the latter appeared excessive the facts should be explained.
When the trade union representative before the Committee was taxed with what he meant by an "excessive dividend" he said:
Excessive dividends to me are what the general trade union movement thinks are excessive dividends and for this purpose I have no other standards.
That was reminiscent of Humpty Dumpty in "Alice Through the Looking Glass" who said,
 when I use a word it means just what I chose it to mean—neither more nor less.

There is indeed, in my view, no serious attempt on the part of certain sections of the public to appreciate the real significance of dividends in relation to the capital employed. It is quite obvious that if a company acquired assets prior to the war in pounds of a much higher value than they have today those assets would now be three times their value, expressed in terms of present money. That is, of course, a truism. Consequently, if the capital before the war was related to the assets in the business that capital should today be three times as high. If such a company paid a dividend of 5 per cent. before the war it would be perfectly reasonable for it to pay a dividend of 15 per cent. today, but if it did so it would be accused of profiteering, yet the amount of return to the shareholder would be exactly the same in real values as it was before and would bear the same relation to the capital employed.
As an alternative the company could make a bonus issue of two shares for one. That would come under even keener criticism, and would be regarded as a present to the shareholders at the expense of the workpeople.
The falling value of money, however, is not the only factor. Most industrial companies today distribute only a part of the profits that remain after payment of taxation. In industry as a whole, companies disperse one-third only of these remaining profits. That emphasises the great measure of restraint that has actuated industry since the war in the payment of dividends. As the recent White Paper showed, although the real value of wages has risen by 40 per cent. since 1938. the real value of dividends paid has fallen by 30 per cent. That surely is an indication of the extraordinary restraint which companies have imposed upon themselves for the purpose of building up their assets.
I think that both sides of the House would agree that it is desirable for companies to conserve their resources by the limitation of dividends. Indeed, legislation ever since the war, whether the Government have been Socialist or Conservative, has been designed to that end, by the imposition of a tax on distributed tax, which recently has been increased. All Governments, and particularly the Socialist Government, have been loud in their exhortations to industry to


restrain dividend distribution and plough more and more back into the business for the replacement of wasting assets and for development.
If a company is to plough back its profits for the development of business, it is only reasonable that those ploughed-back profits should secure a reasonable return. If, for example, a company started with a capital of £100,000 and, quite disregarding the fact of inflation, made profits of £15,000 a year and distributed only £5,000 of those profits after payment of taxation, there would be £10,000 ploughed back into the business every year. At the end of 10 years, there would he £100,000 ploughed back, against the original capital of £100,000. It is clear that the capital invested in the business would now be £200,000. If the company continues to pay a 5 per cent. dividend on the £100,000 nominal capital, it is getting no reward whatever for having ploughed back over 10 years two-thirds of its profits, as so many companies do today.
If, on the other hand, the company pays a dividend of 10 per cent. on that nominal capital, it is accused in many quarters of profiteering. It is quite unreasonable to adopt that attitude. The company has increased its real assets by restraint of dividends, and its real capital is worthy of a reward. No par value shares would achieve that object. No longer would the nominal capital be present in the minds of the public when profits were distributed. The capital account would show the assets, and the distribution would not be shown as a percentage of nominal capital but as a value per share.
In the case which I have cited, if the company originally had 100,000 shares of £1 each, their nominal capital value would not appear as £100,000. The capital would appear as £200,000 and the dividend distributed, instead of being 10 per cent. on the nominal value, would show as 2s. which would represent 5 per cent. on the real capital employed. That would show the true position, and I should have thought that the trade unions would have welcomed that as bringing some reason and logic into the situation and disabusing the minds of the workers of their present misconceptions.
It is quite clear that a company with a small original capital has been able to build up capital over many years

only by dividend restraint. It is in the best interests of the company, of industry and of the country, that it should do so. If it has done so over a long period, and has built up its capital assets to a value far in excess of the nominal capital and has made a reasonable return on that higher capital now employed in the business, instead of getting credit for what it has done, it is accused of gross profiteering.
If that remains the tendency, there will be no encouragement to companies to plough back capital. They will be induced to do so only by penal taxation. It would be disastrous if companies were not to plough back their profits to replace their wasting assets and put money by for the development of the business. If that situation were to arise, this country could look forward, not to increasing prosperity, but only to a declining economy.
I sincerely believe that the introduction of shares of no par value would induce a different attitude of mind. It would show quite clearly to the public that the amount dispersed bore a true and reasonable relation to capital employed in the business. If it did that, it would go far to improve relations between industry and labour. There would be no longer an excuse for the misconceptions of the past. The true position would be shown, and workpeople would be able to co-operate with industry in creating and building up assets in the knowledge that their future and that of the company depended upon their doing so. The introduction of no par value shares is in the spirit of true co-operation to encourage the growth of profit and its fair and reasonable distribution.

11.28 a.m.

Mr. John Howard: I support the Motion because I believe that the introduction of shares of no par value can play an important and decisive rôle in placing the position of equity capital clearly before the minds of the general public and explaining the part that it plays in our national economy. The Motion envisages a change in our traditional approach to a company's share capital. It will be found that the Companies Acts from 1862 to the latest in 1948 provide that a company must state its share capital and its division into shares of a fixed amount. This has.


been the stumbling block which hitherto has prevented the proper understanding of equity capital.
The acceptance of shares of no par value means that we shall underline that the nominal value of ordinary shares bear little or no relation to their real value. A company may have started its life with ordinary shares to a value of £1 each but that value is purely momentary. Its value thereafter becomes either more or less and fluctuates directly with the fortunes of the company.
We shall find that if a company has been unfortunate in its trading and has incurred a series of losses, those losses will reduce the value of the share by a proportionate amount. If, on the other hand, the company has been successful and has retained those profits in the business, then, conversely, we shall find that those retained profits lift the value of the shares by the amount of those profits.
As has been explained by other hon. Members, the ordinary share represents a definite proportion of the equity capital of a company. Whether it is expressed as having a nominal value or a par value or no par value, those principles still apply. It is nothing more than an entitlement to a share in the accumulated capital and the equity of the company.
Now movements in share values—it is important to stress that at this stage—are not necessarily reflected by the quotations on the Stock Exchange. Whereas the balance sheet takes into account purely the history of the company, the amount of profits ploughed back, and so forth, the Stock Exchange quotation takes into account many more factors. It weights panic, it weights prospect, it gives effect to rumour, it gives effect to record, and it also takes into account world conditions and local conditions which may affect the industry in which a company is operating.
The £ sign, which hitherto has been applied to shares, or any other monetary sign such as 1s. or 5s. or whatever may be the nominal par value, is meaningless to indicate the value of an ordinary share. One has only to refer either to the balance sheet or to the Stock Exchange for it to become clear that, whatever value is ascribed to an ordinary share, it is most unlikely that it will be its nominal or par value.
My hon. Friend the Member for Kirkdale (Mr. N. Pannell) drew attention to the changing values occasioned by a rise in prices compared with the pre-war price level. Of course, changing prices inevitably affect the true value of the share, and companies which were operating pre-war are almost certain to find that their shares are worth more than the pre-war nominal value which was fixed when the share capital of the company was issued.
If, in fact, under present-day conditions, those shares accord to something like the original par value, then one of two things has occurred. First, the company has suffered a series of shattering losses which have reduced the value of its shares or, secondly, the company has issued bonus shares either with or without writing up the capital to postwar value, and those bonus shares have brought the issued capital into accord with the real value of the company.
My hon. Friend the Member for Dover (Mr. Arbuthnot) gave an excellent example, setting out the effects of the issue of bonus shares, so I will not weary the House by repeating it. However, I shall give three examples which demonstrate that the value of a share is almost never the nominal value ascribed to it, and that it represents a fraction of the equity; in other words, the subscribed capital and the accumulated reserves.
If we take a company formed with a capital of £100, split up into 100 shares of £1 each, it is apparent that each shareholder who holds a £ 1 share is entitled to one-hundredth of the assets, and, therefore, his share is worth £ 1 of the nominal value. Even at the beginning of the life of a company, however, that value is false, because the company incurs formation expenses, preliminary expenses and issuing expenses in bringing the company to birth. Therefore, even though nominally worth £1, there are certain false assets standing on the balance sheet which ultimately will have to be written off.
If the company prospers and earns a profit of, say, £50, which it retains, then the net value of the assets rises from the original £100 to £150, and the shareholder with 100 of the £1 shares finds that his shares are nominally worth 30s. each. Conversely, if the same company


loses £50, the net assets drop from the original 100 by the amount of £50 down to £50, and the shareholder with his 100 shares in the equity finds that his £1 share is worth only 10s. I think it is fairly clear from those three examples that the shareholder holding a share of a nominal value seldom finds that nominal value reflected in the position shown by the balance sheet.
Shares of no par value acknowledge that fact. They acknowledge that an ordinary share is a fraction of the capital employed and that it has no fixed face value. Canada and the United States have already adopted shares of no par value. In those two countries I believe it is permissible to distribute to the shareholders a proportion of the surplus which a company receives from issuing shares of no par value. A certain amount of disquiet was expressed owing to this practice in the States and I think it right to say here that it is not proposed to follow that practice. The whole of the proceeds from an issue of shares of no par value are to be placed to capital account, not to be available for dividend, and the suggestion of the Gedge Committee is that a stated capital account should be created under which the whole of the proceeds of this type of share should be charged.
The only permissible deduction would be for the issue expenses, the formation expenses, the preliminary expenses, and so on, which inevitably come out of capital, since they are expenses incurred either in bringing the company into being or by raising share capital. I think we can claim the advantage of reality, stressing once more that it is the capital employed in the company against which share values must be measured, and also against which profits and the dividends which are distributed to the shareholders are also to be judged.
The introduction of shares of no par value would also give an added opportunity for those companies to raise capital which possibly have not been too successful in the past, but whose prospects are reasonably good. At present, if a company's ordinary shares are quoted below par on the Stock Exchange, it means that the company is more or less debarred from raising capital without going through the paraphernalia of applying to the court for

sanction to issue shares at a discount. Clearly, no investor will subscribe at par for a share which he can buy on the Stock Exchange at less than par.
If we permit shares of no par value to be issued, that difficulty is overcome, because a share would be issued to the public at its real value at that time, and if it should happen to be below par then no harm is done. The investor goes into the proposition with his eyes open and he subscribes for a share in the company, that is, for a fraction of the company's equity, on its real value at the moment when he subscribes for that share.
It would seem, perhaps, from the speeches made from this side of the House that there could be no reasonable objection to the issue of shares of no par value and the changes in legislation which that would imply. Although my hon. Friend the Member for Kirkdale referred to certain objections from the T.U.C., whose representative signed the minority Report, I think it would be advisable for the House to look at the objections again.
The objections fall into two categories: First, that there was little demand for shares of this type and, secondly, the objections raised by the T.U.C., which can be summarised by saying that they fear that company assets might be manipulated, and they also fear that these shares would be used to disguise excessive dividends.
The first objection of little demand was an objection raised by the Cohen Committee in 1945. It said it did not think there would be very much demand for the shares, though it could see no possible objection to them, such shares having a perfectly clean bill of health in regard to legal status. If there is no demand, no company is forced to issue at shares at no par value. It would be purely optional. The only condition placed on a company is that it must either have the whole of its capital in shares of no par value or else it must adhere to the conventional form of share capital. Therefore, the answer to the point about little demand is that the matter has been discussed and professional bodies have indicated their support for the shares, and, in any event eleven years have passed since the Cohen Committee reported.
As to the objections of the T.U.C., there was, first, the fear of manipulation


of company finances. I feel that we can safely discount that objection. The Companies Act, 1948, brought in a number of stringent provisions controlling the finances and affairs of companies. A company's auditor is required to report on a true and fair view as expressed by the company's balance sheet and also a true and fair view of the profits for the year as shown by the company's profit and loss account. Thus, there are already adequate safeguards in the existing company law to mitigate risks of manipulation.
The second T.U.C. objection was that the shares would be used as a disguise for excessive dividends. In the minority Report reference was made to the issue of bonus shares which had, I think, in 62 cases out of the 100 issues examined, resulted in increased dividends. That was as far back as 1949. The Report expressed the view that the conversion of shares into no par value might lead to a similar all-round rise in dividends.
In cross-examination, the Trades Union Congress representatives were asked what view they took of the percentage dividends in relation to wage claims. They replied that they were impressed by whether a dividend was excessive or not. When asked to define more closely what an excessive dividend was, they said it was one which appeared to a trade union to be excessive as compared with the wage level of the work people. There was no more specific definition. This aspect of the evidence was further supported by their pointing out that trade unions would find it extremely difficult to explain to their members dividends couched in terms of shares of no par value and that they would prefer to retain the old yardstick of a percentage based on nominal value.
I am sure we can all understand the difficulty presented by having to explain a dividend under any system. The T.U.C. evidence was to the effect that, if a dividend based on share capital appeared to be excessive, it would be possible to explain it. I do not altogether accept that point of view. I feel that the percentage method, although it may be explained afterwards, leaves a definite impression in a person's mind. That impression may be a wrong one. It is possible that people who do not under-

stand the capital structure of a company may be led astray by the apparent excessiveness of a dividend in terms of a percentage.
With a share of no par value there is not the same difficulty. There is no wrong impression created in the first instance by an excessive percentage. Consequently, it is very much easier to explain the relationship of the dividend to the capital employed in the business if one has not to dispel an objection created by the feeling that a dividend of, say, 100 per cent. or 60 per cent. is absolutely excessive although such dividend may, in fact, be only 5 per cent. when related to the true capital employed.
Therefore, I feel that if any attempt is made to explain the dividend, shares of no par value will make it essential to give an explanation about the capital employed in the business. If the trade union representatives take this line, they will inevitably be spreading an understanding of the capital structure, which will be for the good of the industry as a whole.
The trade unions in the United States of America have accepted these shares, and, apparently, they do not experience any trouble in explaining the dividends to their members. There also appears to be difficulty in explaining the no par value system. I do not believe that we in this country are any less intelligent than the people in America, and we shall surely be able to explain to all concerned exactly how shares of no par value work.
It is noticeable that when a dispute arose in the motor industry on the subject of dividends, the trade unions immediately picked up the fact that bonus issues had taken place during the course of the years which were quoted as part of the dividend record, and they pointed out that the over-all return was rather more than the company had led them to believe.
I have spent a certain amount of time discussing what is an excessive dividend from. the trade union point of view. If the House will bear with me, I will endeavour to give what I consider to be the proper definition of an excessive dividend. In my judgment, it is one which weakens the fibre of a company by distributing a dividend which depletes


the cash resources beyond the amount which a company can afford if it is to safeguard the investment of its shareholders and the livelihood of its employees.
I do not consider that we need worry unduly about excessive dividends of that order being distributed. Most boards of directors are reputable people, with a clear sense of duty to both shareholders and employees, and it is not likely that they will be led away by shares of no par value to distribute dividends which would destroy the fabric of the company.
In any event, today—certainly if the Finance (No. 2) Bill duly becomes law—there is every deterrent towards the distribution of excessive dividends, because the cost of distributing a dividend is magnified by what amounts to a fine of 30 per cent. levied by the Exchequer in distributed Profits Tax on the gross amount of the dividend. A dividend of £57 10s. net to a shareholder costs the company a fine of £30. Thus, it is clear that there is no real incentive to deplete the resources of a company to any extent beyond that which is really necessary to reward a shareholder for investing his capital in the company. I feel that we can safely rely on the directors there.
I am glad to see my right hon. Friend the Financial Secretary to the Treasury in his place. I feel that a certain amount of assistance could be given towards a general understanding of the problem of capital employed, which is emphasised by shares of no par value, if we could direct our fiscal policy to that end. The present Distributed Profits Tax is charged on the whole of the dividends distributed irrespective of the structure of the capital employed, and irrespective of how much of the shareholder's earnings in the past have been ploughed back and saved for him and now represent part of the surplus of the community in accumulated profits and reserve.
I am wondering whether it would not be possible to tax the company on its distributed profits only after a return of, say, 5 per cent. had been given to shareholders on the whole of the accumulated savings in the company. After all, we expect a return on our savings, and if a fiscal policy of this kind could be introduced, it would underline exactly how much had been saved, exactly how

much capital was employed in the company before the dividend of 5 per cent. was paid, and that it would be free of distributed Profits Tax. Though that might mean raising the overall rate, I think it would be worth it from the educational point of view, because it would help to create a better understanding of this problem of the capital employed.
I strongly support the Motion. I feel that shares of no par value can play a most useful part in representing the true position of the company to all those interested parties. If I may close with a quotation from the report of the Gedge Committee, I want to repeat these words:
… we hold strongly to the view that the adoption of the no par value system would assist in removing the misunderstanding and misrepresentation to which the existing system gives rise, and which are so undesirable from the points of view of employers, workpeople and the nation.
I believe that those words are prophetic, and might well be borne in mind by all sides interested in this problem. In short, if we introduce this system of shares of no par value, although there may be some objections, I think we shall learn to love them in time.

12.2 p.m.

Mr. Douglas Jay: I feel that I ought to congratulate the Parliamentary Secretary to the Board of Trade on being here this morning after his great exertions of this week. I should also like to say that I am sorry that the hon. and gallant Member for New Forest (Colonel Crosthwaite-Eyre) is not with us throughout this debate, because he has taken a great interest in this subject.
Hon. Gentlemen opposite have been very happily agreeing with one another this morning, but I am afraid that I am impelled to break that harmony. We are told by the hon. Member for Dover (Mr. Arbuthnot) that the legalisation of these no par value shares would, in his opinion, make for better relations in industry between capital and labour. If it would do that, I think most of us would be all in favour of it, but I am afraid that I am not convinced that it would. I think it might lead to more misunderstanding rather than less.
The hon. Member for Dover said that there was a suspicion in the minds of


organised labour that there were snags in these operations connected with no par value shares, bonus issues and the rest, and our task is to try to remove that suspicion. I am afraid that the problem is not quite so simple as was stated by the hon. Gentleman. There is a snag, and, therefore, we cannot tackle this problem by just trying to convince people that there is not.
In pure arithmetic, it is quite true that the nominal value of a share means almost nothing. What matters is the capital employed in the business and the relation in money terms of the dividend to the capital employed. Unfortunately, it is extremely difficult for us to discover what that is. It is quite true, as accountants and other hon. Members opposite have said, that an ordinary share is a proportion of the equity. The Gedge Committee used the words "an aliquot proportion of the equity". Whether that word makes the matter any clearer in the minds of organised labour, or indeed unorganised labour, I am not sure, but it is, I suppose, accurate.
It is true, as a matter of accountancy, that when a bonus share is issued all that happens is that, if we look at nothing else, some of the previously earned profits are capitalised, and by that operation the market value of the shares, from the shareholder's point of view, is not altered. So far as it goes, that is perfectly true, but I think that, whether we look at that as pure accountancy or as pure theory, we are only looking at part of the picture.
If we now turn from the theory, and look at actual practice and see what happens then, the simple picture is really a misleading one. I think that the snag about these no par value shares is that, by getting rid of the conception of shares as a percentage of something, though that seems to me to be misleading in any case, we make it even more difficult for the shareholder and the ordinary public to understand the relation between dividends and the capital employed in the business, and make it easier, in the case where excessive profits are being earned and excessive dividends being paid out, to conceal the fact of what is going on.
In certain cases, what actually happens is that, first—and this is the genuine apprehension in the minds of people on

the workers' side—high profits are being made in some firms, perhaps because of exceptional enterprise or efficiency, perhaps because of restrictive practices—and we are aware that these go on—perhaps because of deliberate wage restraint, which enables profits to be higher than they might otherwise be, or because we are in an inflationary period and there is an inflationary element in the income which the shareholder receives.
That is the first stage in the process. Then, part of these high profits, quite properly, are employed in the company itself, which is a good thing from the national point of view, by being put to reserve or ploughed back, and not paid out in dividends. Let me make it clear that I am with hon. Gentlemen opposite when they say that, if the choice is between paying all these high profits out in dividends and putting part of them to reserve, the latter is preferable; but that is not the end of the argument. It does not mean that that is the best possible thing that could have happened.
What it does mean is that if a high proportion of profits is put to reserve, we enhance our physical assets in that way. It means that the assets of the company increase in value. Their real value, and indeed their market value, increases, and of course, the shareholder's holding, in terms of market value, is more than it was before. That is to say, he has earned a capital profit, part of which he can sell on the market, thereby obtaining a receipt which is Income Tax and Surtax free.
The next stage is that one of these bonus issues is made. Looking at the matter through the eyes of accountancy, if a pound share is transformed into two ten-shilling shares, and all the assets of the company remain worth exactly what they were before, that is a purely arithmetical change, and there has been no change in relation to capital, to labour or the distribution of the national income or anything else.

Mr. Arbuthnot: Surely, the right hon. Gentleman will agree that that is a case of share-splitting, not a bonus issue?

Mr. Jay: I agree with the hon. Gentleman. For the purpose of my argument, it comes to the same thing. I am trying to concede the hon. Gentleman a genuine element in his argument.
What happens is that whole proceeds of capital appreciation is in the hands of the shareholder. When there is a case of share-splitting or a bonus issue, and precisely the same sum of money is paid out in dividends, I would accept the case made by hon. Members opposite that nothing could happen which affects the realities of the case at all. The real crux of the matter is that, if we look, not at theory, but at the actual history of these cases, we always find, in the normal case—not in all, but in the majority of cases—that dividends are increased either immediately after the issue of the bonus shares, or perhaps two years afterwards, and that the dividends settle down at a higher level, and, therefore the value of the shareholder's actual holding does rise over the whole period of the operation, and he has earned a capital profit.
I do not think that there is really much dispute about that in practice. I should like to quote from the minority Report of the Gedge Committee. Mr. Beard, in paragraph 21 of the minority Report, stated:
I have had examined the dividend records of 100 of the first companies to make 'bonus ' issues after the duty was repealed "—
that was the tax on bonus issues introduced by one of the Chancellors of the Labour Government—
 in April, 1949. 62 of these 100 companies distributed more money (in some cases more than twice as much) in dividends in respect of the year following the `bonus' issue than in respect of the preceding year and this figure rose to 80 in the year but one following the 'bonus ' issue.
That is what we would expect to find, and it shows that bonus issues are usually connected with a rise in dividends.

Mr. J. Howard: Is the right hon. Member for Battersea, North (Mr. Jay) saying that the shareholders are not entitled to any interest whatever on their accumulated savings within the company, but that these profits are to be ploughed back continually?

Mr. Jay: I quite appreciate that point, and I will come to it in a moment. It is a perfectly valid question. In case an hon. Member says that this evidence, coming from 1949, is out of date, I should like to indicate to the House the example of the Shell Company over the last three months, because that very well illustrates the whole process which I have been trying to describe.
We all know that oil companies practise what the Parliamentary Secretary to the Board of Trade would call common prices all over the world, and are in a strong quasi-monopoly position and earn very high profits. The Economist of 21st April, describing the latest annual report said:
 ' Cornucopian ' is the word for the preliminary statements of the Royal Dutch Shell Group for 1955. The tax-free ordinary dividend for Shell Transport and Trading is 15 per cent. plus an extra dividend of 3¾ per cent. making 18¾ per cent. tax free for the year, compared with 15 per cent. tax free for 1954. Ordinary shareholders in Shell will also receive a one for four free script issue of £1 ordinary shares on the increased capital and subject to the conditions then ruling it is hoped the tax-free dividend rate of 15 per cent. will be maintained.
That means of course that more money will be paid out.
It is not irrelevant to point out that, according to the same issue of the Economist, these ordinary shares of Shell Transport and Trading stood at 129s. in January of this year and now stand at more than 170s. It is perfectly clear that, as a result of the whole operation, and based ultimately on the strong monopoly position of these companies, a large capital profit has been earned by the holders of these shares.
The hon. Member for Southampton, Test (Mr. J. Howard) asked whether, if the companies reinvested in the business. it was not reasonable that the shareholders should get some interest on the extra capital which they had invested. Certainly it is, but, of course, what happens in fact is that they can take out a proportion of their receipts in capital appreciation which is untaxed. That position is unfair in comparison with that of the rest of the community which can earn its living only by wages or salaries and cannot escape Income Tax or Surtax on them.
I agree that it is relevant to this argument that we should consider whether excessive profits are being made and whether excessive dividends are being paid. I should be inclined to define excessive profits—I agree that the account-ancy definition is "denuding the company cash"—as profits due to some restrictive practice or monopoly situation—at all events in a great number of cases—and I should define excessive dividends as dividends based on profits earned in that


way or in a somehow not fully competitive situation. It is no use denying that that situation exists. I can quote the Imperial Tobacco Company, which at this moment is maintaining profits by a very ruthless restrictive practice in the retail tobacco trade.
Therefore, to cut the matter short, we draw a conclusion different from that argued by hon. Members opposite. The conclusion which we draw is that it is undesirable that national savings shall take place by this method, or mainly by this method, of capital appreciation within companies. I fully agree that it is better that profits should be put to reserve rather than paid in dividends, but that is not the end of the story, because capital appreciation continues as a result of that method.
Hon. Members will see from the Economic Survey for this year that the total profits over and above dividends and taxation in all companies amounted to about £1,500 million in the past year. That means that the private capital in the hands of private shareholders is increasing by an amount about equal to ten times the yield of death duties. That is a very significant fact, from both the point of view of capital appreciation not subject to tax and the point of view of the distribution of property and incomes in the country.
Bonus issues and the whole process of capital appreciation were mentioned by the hon. Member for Dover and he was right to introduce that subject. We feel that although giving dividends as a percentage is certainly misleading and leads to some misunderstanding, at least it has some limit, in a confusing set of circumstances, on the payment of excessive dividends which makes easier the whole process of earning high profits by monopoly practices and then handing them over to the shareholders, not in the form of taxable income, but in the form of capital appreciation.
I do not think that it is a very important matter one way or the other. I would not exaggerate it, but I am not satisfied that the change would make for less misunderstanding. I am inclined to think that it would make for more misunderstanding. Whatever we think about the merits of this complicated argument

and about the merits of capital appreciation, if it were misunderstood and not supported by organised labour generally,' the Government would not be wise to make a change like this which, in effect, would be supported by only one side of the House and, broadly speaking, by only one side of industry.

12.18 p.m.

The Parliamentary Secretary to the Board a Trade (Mr. Derek Walker-Smith): It might be convenient if I intervene at this stage to give the Government view on this matter, but without any intention of bringing the debate to an end. I should like to begin by associating myself with what the right hon. Member for Battersea, North (Mr. Jay) said about my hon. and gallant Friend for New Forest (Colonel Crosthwaite-Eyre), who has on so many occasions contributed so much to the financial and economic discussions in the House. I am sure that we all wish him a very speedy recovery.
The right hon. Gentleman was good enough to congratulate me on being here at all. It is a fact that he and I have spent many hours—I shall not say weary hours; no doubt they were profitable, if not always exhilarating—together in discussion of questions of restrictive trade practices. At one or two moments in the right hon. Gentleman's speech I wondered whether perhaps he had been so long on that subject that he had rather confused the subject before the House, because in his reference to the Shell Company and the tobacco companies he seemed to get back to the subject of restrictive practices, from which, frankly, I am extremely relieved to be away, if only for today.
We have had an interesting, informative and stimulating discussion on this important if rather specialised subject. As the House is aware, the main recommendation of the Gedge Report referred to in the Motion was that the Companies Act should be amended so as to allow the issue of ordinary shares of no par value. As has been pointed out by more than one of my hon. Friends, and confirmed, I think, by the right hon. Gentleman, an ordinary share represents a defined proportion of the equity of a company, whether it be a share having a nominal value or whether it be a no par value share.
It is the fact that no par value shares have been excluded from our company structure for a long period. The present basis of exclusion derives from Section 2 (2) of the Companies Act, 1948, but that substantially reproduces the position dating from as far back as the Companies Act of 1862, with the result that over this long period we have the position that every company limited by shares must have its capital divided into shares having a nominal value in relation to such capital.
It is clear that weaknesses have become apparent in that system in the context of the circumstances of today. It is, of course, apparent, that effluxion of time may make nominal values out of date meaningless and possibly misleading. Over this half of the twentieth century that tendency has been aggravated by the very rapid change in the value of money. In those circumstances, it is perhaps natural that there has been a significant growth of business opinion favouring the legalisation of no par value shares so as to avoid the misleading effect created by stating a dividend as a percentage of nominal capital.
That opinion has, naturally, been reinforced by the favourable circumstances over many years in other countries. My hon. Friend the Member for Test (Mr. J. Howard), in what was a most admirable and informed speech, as I am sure the House will agree, referred to the experience of Canada and the United States. In the United States, about one-third of the companies quoted on the New York Stock Exchange operate on no par value shares. In Canada and Belgium, the figure is higher being about three-quarters of the quoted companies.
My hon. Friend the Member for Dover (Mr. Arbuthnot) who introduced this subject so lucidly this morning, referred to the Cohen Committee and to what has happened in this context since then. The Cohen Committee which reported in June, 1945, refrained from making any recommendation about no par value shares. It did that substantially for two reasons: first, because although its members conceded that there was a good deal of logic in the argument they thought that there was, at any rate at that time, little demand for the introduction of this system. The second reason was the necessity as the Com-

mittee saw it, for elaborate provisions to safeguard against the opportunity for unscrupulous manipulation of company accounts.
After that, no action was taken until the Gedge Committee reported following on the Private Member's Bill of my hon. Friend the Member for Middleton and Prestwich (Sir J. Barlow), who has also taken such a great interest in this subject. That was in December, 1952, and the Gedge Committee reported in January, 1954. As has been pointed out by my hon. Friend the Member for Test, there was a majority Report and a minority Report—in fact, a one-man minority Report. The majority Report attracted a very favourable reception from the general Press, the financial Press and the professional Press, virtually all of which conceded the logic of the case made out in the majority Report.
The approach of those who made the majority Report was really summarised in the opening passages of paragraph 33 of the Report, where it is stated:
 We are satisfied that the existing system in so far as it makes it obligatory to attach a fixed nominal value to an ordinary share, the value of which in practice fluctuates is inherently misleading and that some take advantage of this fact, whatever may be their reasons because it suits them to do so, although they themselves fully appreciate the true position.
Then the majority Report proceeded to consider these matters, and its conclusions and recommendations are summarised in paragraph 72
The basic recommendation was to allow all companies—to allow them, not to compel them—to issue ordinary shares on a no par value system, but not preference shares. Then there were a number of subsidiary recommendations which I will briefly summarise. First, the Committee recommended that permission to convert ordinary shares of nominal value into no par value shares should require a special resolution of the company, and of course vice versa.
Secondly, the Committee recommended the substitution of a stated capital account for the paid up capital account and share premium account. Then it recommended safeguards against abuse—in particular, that no part of the proceeds of the issue of such shares should be distributable. Then there were certain


consequential changes which the Committee recommended and with which I need not trouble the House, in regard to registration fees, capital duty, and so on.
In the majority Report the Gedge Committee dealt with the two matters which inhibited the Cohen Committee from coming to any recommendation. They are the two already referred to by my hon. Friend the Member for Test. On the question of demand, which was the first of the Cohen Committee's inhibiting factors, the majority Report of the Gedge Committee deals with that subject very fairly in paragraph 26. It says that it is not a question of demand from the general public as such—that one would not expect—but within the context of this subject there is a demand; or, at any rate, there is a demand in the sense that the thing would be widely used if the facilities were available. I need not refer to the body of expert opinion in favour of it because my hon. Friend the Member for Dover has already given an indication of the sort of bodies which gave evidence in favour of the adoption of this principle.
On the second matter which troubled the Cohen Committee, that of the possibilities of abuse and the consequential necessity for safeguards, I think that the basic consideration to have in mind is the date of the Cohen Committee's Report in relation to our company law. The Cohen Committee reported in June, 1945. That is to say that the Report is prior to, and, indeed, led up to in many respects, the great post-war revision of our company law which is now enshrined in the Companies Act. I am confident, as I think the majority of the members of the Gedge Committee were confident, that we have sufficient safeguards in our general law as to misfeasance, Board of Trade powers of investigation under the Companies Act, the power of the court to wind up companies, and the like. Both those difficulties which were felt by the Cohen Committee are, I think, at present resolved, and resolved in favour of the principle of no par value shares.
The minority Report of the Gedge Committee emphasised two main objections to the legalisation of no par value shares. First, it mentioned the possibility of the system being used for purposes

of concealment of what goes on in company finance and, in particular, camouflaging payment of what was called excessive dividends.
The second basic objection advanced was that such a change would, or might, create suspicion, rightly or wrongly, amongst employees. I will say straight away that I would deprecate any atmosphere of suspicion on either side in industry in this or any other matter, and I would respectfully associate myself with what was so well said by my hon. Friend the Member for Dover at the beginning of his speech, on what he called the unity of capital and labour and unity of purpose in our common endeavours.
Reference has been made in this debate, as well as in the Gedge Report, to the question of dividends. The right hon. Gentleman the Member for Battersea, North has been good enough to give us his definition of what are excessive dividends. I am bound to say, with great respect to him—and I have great respect for him—that I did not find it as clear as the definition volunteered by my hon. Friend the Member for Test, which seemed, at any rate from the point of view of what might be called orthodox finance, to be an unimpeachable definition.

Mr. Jay: Would the Parliamentary Secretary not agree that there is more than one sort of excessive dividend?

Mr. Walker-Smith: I appreciate that there is more than one approach to the matter, but the situation in which dividends figure has, I think, been confused rather than otherwise by the principle of compulsory nominal value shares. The right hon. Gentleman has probably seen the recent Stock Exchange statistical analysis, from which it appears that whereas ordinary dividends are 16…2 per cent. of the nominal capital, they are 5…1 per cent. of market value.
The right hon. Gentleman's remarks about capital appreciation also should be looked at in the light of the Stock Exchange analysis which shows, taking all forms of capital, an increase of only 5 per cent. It is, of course, the sort of point which depends very much on the time when it is made. If this debate had been in progress and the right hon.



Gentleman had wished to make his point on 8th March, or whenever the low point of the ordinary share index was reached, he would not have been able to quote the figures which he did in justification of that case.

Mr. Jay: While not wishing to prolong this matter, would the Parliamentary Secretary not agree that the figure given in the Economic Survey for profits put by over and above dividend and taxation, which has been consistently round about £1,000 million in the last four or five years, is really the best estimate of what we want to get at here?

Mr. Walker-Smith: No; I think that the matter is best put into perspective by the figures which my hon. Friend the Member for Kirkdale (Mr. N. Pannell) quoted from paragraph 17 of the Command Paper on the Economic Implications of Full Employment, which point out that since 1938 the real value of wages and salaries has increased by 40 per cent. and the real value of dividends has decreased by 30 per cent.

Mr. Jay: By quoting those figures, the hon. Gentleman compels me to quote, again from that White Paper, the fact that the real value of profits since 1938 has increased by more than the real value of wages and salaries.

Mr. Walker-Smith: The right hon. Gentleman is now referring to gross profits before taxation, which does not seem to have very much to do with what goes into the pockets of shareholders, which is what we were considering when we embarked upon this line of argument.
We are, perhaps, getting a little away from the subject of no par value shares. May I come back to it by making this more general point, that we fully accept the importance of making available the fullest information to employees relating to the finances of companies, and especially the relationship of dividends and wages; and enlightened employers, of course, are very well aware of that. The introduction of no par value shares will in no way derogate from the desirability of that principle. We certainly welcome anything which removes suspicion and helps industrial relations, thus expanding production and helping us forward on our great purpose of fortifying and expanding our economy.
On the general principle of the importance of these matters, I accept what is said in paragraph 27 of the minority Report; but I dissent from the suggestion that it will be more difficult to explain these matters in the proper context under a no par value system than it is under a system of nominal value. It is better put, I think, in the majority Report, paragraph 30:
 Once it be accepted—as the witnesses appeared to accept—that the percentage rate of dividend on nominal capital, is no true index of the shareholder's reward and that distortion occurs through relating the distribution to a capital sum which, normally, has no meaning save historically, then the task of explaining the truth must, as we see it, be made easier and not more difficult if the factor giving rise to the distortion be removed.
The Government, therefore, recognise that the Gedge Report has made a valuable contribution in this field, and they have no wish to perpetuate a state of affairs which can give rise to misconceptions and even misrepresentation. But there is one respect in which the Report is perhaps incomplete, in that it does not spell out in detail the practical and consequential difficulties in the sphere of legislation.
In paragraph 17, the majority Report says that the introduction of the system on a permissive basis would not entail any elaborate amendments to our company law. I agree with that, and, with my hon. Friend the Member for Dover, I broadly accept that conclusion in the field of company law. There would be legislative changes which would be significant but not, I think, elaborate except in regard to the recommendations in respect of reconstructions and amalgamations, which are, however, not an indispensable feature of the introduction of this principle.
There is another field in which consequential legislation would be required, namely, the fiscal field; but no doubt it was outwith the terms of reference of the Gedge Committee to give detailed consideration to that. Here, of course, our position is very different from that of the United States because our tax law is geared to a system of ordinary share capital expressed in terms of nominal value, and theirs is not.
I do not want to catalogue in detail the changes in the fiscal law which would be required if and when effect were given


to this principle, but I can say that legislative changes would be necessary over the whole main field of tax law—Profits Tax, Income Tax, Surtax, Estate Duty and Stamp Duty, a varied and comprehensive field.
On Profits Tax, questions about the definition of whole-time service directors in director-controlled companies are related to shares of nominal value. There is also the question of whether companies are subsidiaries of another, which the right hon. Member for Battersea, North and I have been discussing in a different context earlier this week. Questions arise about the specified fractions of the ordinary share capital of the companies concerned. In that type of case, it would be necessary to apply statutory fractions on a new basis.
There are also questions about the distribution of capital, which is not taken into account in computing Profits Tax liability. There, some amendment would be necessary to the Finance Act. 1947. Similar points arise in respect of Income Tax and would require amendment of the Finance Act. 1953, for these purposes. There is also the question of Surtax, in particular such questions as the definition of control of companies which are controlled by not more than five persons, where questions of Surtax liability arise. That would require amendment of the Income Tax Act, 1952.
In Estate Duty, valuation of holdings in private companies can depend on matters taking into account fractions of the aggregate nominal amount of the company's shares and debentures, and that would require amendment of the Finance Act, 1954. Further, in regard to Estate Duty, there would need to be amendment of the Finance Act. 1940. In the field of Stamp Duty, a company's capital duty is chargeable at the rate of 10s. per £100 of nominal amount of authorised capital. There again, there would have to be an amendment to the Stamp Act, 1891, and the Finance Act. 1933, in order to implement the system of no par value shares.
I have given that rather necessarily compressed and quick catalogue of the sort of changes which would arise in our fiscal law. I do not think they have been given before in public discussion of this question and it is right that they should

be in the minds of hon. Members so that the House can appreciate the changes in our fiscal law which would be entailed as a consequence of any legislation in the companies field giving effect to this principle.
I thank my hon. Friends for having brought the matter before the House and for the guidance which they have given in this esoteric field. [Interruption.] It is a slightly mixed metaphor. The right hon. Member for Ipswich (Mr. Stokes) has not been sitting with us all the week discussing restrictive trade practices, and he brings a fresher mind to bear and a greater felicity of language than we are able to achieve at this time.
It is obvious from what I have said that the Government cannot be tied down to a specific time to introduce a Measure to implement the recommendations of the Majority Report of the Gedge Committee. The matter must be viewed in the light of the necessity for consequential legislation of the extent, diversity and complexity which I have sought to describe. My hon. and gallant Friend's Motion, I think, appreciates this, and it contains no reference to date. In the event of the Motion commending itself to the House, I should like it to be clear that the Government cannot regard themselves as being bound to find time for this legislation at an early date, but as there is no date specified in the Motion, the Government are not opposed to it.
We welcome the principle of no par value shares, and, for our part, if the House is so willing, we are prepared to accept the Motion on the basis of no time commitment, because we are satisfied that the case relating to the principle of no par value shares is properly made out.

12.46 p.m.

Mr. John Cronin: I have followed very carefully the speech of the Parliamentary Secretary, which was made with his usual clarity and dialectical skill, but I cannot find myself in complete agreement with what he said. I think that most of my hon. Friends will be pleased that there will be at least some delay in the introduction by the Government of legislation on the lines indicated by the Gedge Committee.
The Parliamentary Secretary pointed out that the Gedge Committee reported on matters which arose from some of the


weakness in our financial structure, and said that this weakness was greatly increased by the change in the value of money. I fear that the value of money has been changing so rapidly during the last few years that the Parliamentary Secretary will find that numerous committees will soon have to be appointed to deal with the changes that are brought about. I note that the Financial Secretary to the Treasury is no longer with us, but it is his Department's recent policy of raising interest rates that has caused such a depreciation of Government securities that the case might even be considered for a no par value of Government securities.
The Parliamentary Secretary referred to the definition of an excessive dividend given by the hon. Member for Southampton, Test (Mr. J. Howard). The hon. Member for Test is a very skilled accountant, I believe, and his definition was what one would expect from an accountant, but I am a little surprised that the Parliamentary Secretary should say that it is an unimpeachable definition. The hon. Member for Test said that an excessive dividend was one which weakened the fibre of the company's financial structure. That definition, which appears to have the full approbation of the Parliamentary Secretary, indicates the complete difference in attitude between the respective sides of the House.

Mr. J. Howard: My definition was that an excessive dividend was one which weakened the fibre of a company and the structure of its capital and prejudiced not only the investment of its shareholders but the continued employment of its workpeople.

Mr. Cronin: I accept the hon. Gentleman's correction. I have no doubt that he had that in mind. Everybody knows that if a company does not prosper its workers will be affected.
As to the difference in attitude between the two sides of the House, we have heard that an excessive dividend weakens the fibre of a company or prejudices the employment of the workpeople, but there has been no suggestion that an excessive dividend is one which weakens the economic structure of the country as a whole or impairs the morale of our workpeople. The attitude which has

been expressed is typical of the other side of the House.
I think that we are indebted to the hon. and gallant Member for New Forest (Colonel Crosthwaite-Eyre) and the hon. Member for Dover (Mr. Arbuthnot) for bringing this Motion to the attention of the House, not because of the intrinsic value of the Motion itself, but because it throws so many sidelights on matters of the greatest public importance which tend to lie in Parliamentary obscurity.
I think that the hon. Member for Dover will agree that it would be undesirable to introduce legislation to implement the views of the Gedge Committee unless there were some real necessity for doing so. I think that it is common ground on both sides of the House that Parliamentary time is rather precious. There is a mass of legislation which has to go through the House and another place, and there is very little time for it. Anything which requires comprehensive legislation should be something of over-riding importance, affecting the whole country, and of value to the nation and the people. Does that really apply to the recommendations of the Gedge Committee?
I think we can agree, on both sides of the House, that there is a certain amount of force in the argument that the position now as regards the nominal value of shares is somewhat illogical. We all realise that nominal value has no reference to the real value of shares, but we must beware of pursuing apparent logic. The genius of this nation is that it is not too easily persuaded by what appears to be logic. Indeed, we sometimes regard logic with a certain amount of suspicion. Had we been logical, we should have introduced decimal coinage; and had we been logical in 1940 we should probably have signed a treaty with the Germans. We tend to look askance at matters which are apparently logical.
In fact, we go rather further than that. What we have to consider is not whether this is logical or not but whether it would be of the greatest importance, or of importance or value, to this country to change the situation. We had already had an extra Report from the Cohen Committee, in 1945, and I cannot understand why the Gedge Committee was appointed. It was appointed in 1952, but with the full knowledge of the Cohen


Committee Report. It is rather surprising that the Parliamentary Secretary and the President of the Board of Trade should have been so preoccupied with matters of company law of that kind. Economically, subsequent events in this country have been so disastrous that clearly it would have been profitable if they had turned their minds in other directions rather than to what the Parliamentary Secretary has described as this esoteric subject.
The Cohen Committee spoke in no uncertain terms as follows:
While there is, in our view, much logic in the arguments put forward in favour of shares of no par value, there is little public demand for, and considerable opposition to, the proposal. We have also had some evidence that in practice this class of share has given an opportunity to the unscrupulous to manipulate accounts which could be defeated only by a series of elaborate provisions the substantial effect of which would be to re-introduce a capital account and, with it, most of those same complications which the no par value share was designed to avoid. Nor would the proposal bring any of the other major subjects of our inquiry nearer to solution. We therefore refrain from recommending any change in this matter.
This is clearly a comprehensive negation of the whole subject by the Cohen Committee. I do not think that such changes as were proposed by the Finance Act, 1948, would justify the change. It is rather surprising that the Board of Trade should have been concerning itself with these comparatively unimportant matters in 1952 and ignoring the recommendation of that very valuable Committee.
It has been suggested by the hon. Member for Dover and other hon. Members opposite that the Gedge Committee showed a considerable demand for changes in company law as regards nominal shares. The Committee quote the various organisations particularly concerned about this. When we look at the organisations which support this recommendation, it is rather surprising to find that they include the Association of Investment Trusts, the British Insurance Association, the Council of the Stock Exchange, and the Issuing Houses Association. These are all organisations concerned entirely with the marketing of shares, a very limited part of the country's economy.
We find that other very responsible people who were asked about this, such as the Trades Union Congress, the Society of Incorporated Accountants and Auditors, the Institute of Chartered Accountants in England and Wales—and no doubt the hon. Member for Test is a member of one of those bodies—all spoke against the recommendation of the Gedge Committee.

Mr. Walker-Smith: I am sure that the hon. Gentleman wants to put this matter fairly to the House. He will appreciate that his account of the bodies in favour was highly selective. He omitted from his list the Federation of British Industries, the British Chambers of Commerce, the National Union of Manufacturers, the Law Societies both of England and of Scotland and the Chartered Institute of Secretaries, none of whom would appear to come within his stricture of being concerned solely with investment.

Mr. J. Howard: The hon. Gentleman has quoted the professional accountants, who, to quote from the Gedge Committee's Report, with the exception of the Society of Incorporated Accountants and Auditors, expressed a strong attitude upon this subject. It is right to say that the Institute of Chartered Accountants in England and Wales has expressed the view that its actual introduction should depend on the degree of demand. So it has not opposed it.

Mr. Cronin: I am obliged for these interruptions. They help to maintain the level of the debate.
I must point out to the Parliamentary Secretary that, although he has referred to some additional institutions, the ones which I mentioned represent more than 50 per cent. of those who gave assent. Some of the others mentioned certainly do not receive the highest approbation from hon. Members on this side of the House for their views on matters like this. May I refer the hon. Member for Test to paragraph 15 of the minority Report? It says very clearly:
… neither the Institute of Chartered Accountants nor the Society of Incorporated Accountants considered that there is any appreciable demand.
If I may return to the main thread of my argument, I would point out that the hon. Member for Dover said that the fact that shares were not of no par


value at the moment discouraged people from investing. Can he really sustain that notion? There has been a gigantic investment boom over the last few years. It is notorious that there has been a grotesque increase during last year and the year before in the total value of shares on the Stock Exchange. This particular fact has also been apparent in the United States, and the United States trade unions accept it. But I do not think that the argument which we have heard is one which we should apply to ourselves in one isolated aspect of finance. I think that the hon. Gentleman should also recollect that the United States Government make a special point about discriminatory taxation against any company which changes over to no par value shares. Obviously they regard that as something which gives an advantage to a company in taxation and, therefore, discriminate against it.
It has been suggested by the hon. Member for Dover that we on this side of the House are allergic to bonus issues. It is appreciated on this side of the House that a bonus issue by itself does not make any difference to the financial welfare of the shareholders. Quite obviously, if a company has so many £1 shares and doubles that number of £1 shares, each shareholder still has the same interest in the company, the same value and the same share. What we object to is that a bonus issue is so frequently a precursor to a large dividend rise and often when there is a large dividend rise that is detrimental to the economy of the country. It has been pointed out that in every hundred bonus issues about 62 were followed by an increase in dividend. We object to that. Dividend increases should be on a reasonable basis which takes into consideration the general welfare of the whole country.
Where we have some doubts about the Report of the Gedge Committee is that there is some fear that, if we make large changes in company law like this, that might be the thin end of the wedge. which could cause manipulators of various kinds to obtain an advantage.

Sir John Barlow: Will the hon. Member indicate what kind of further changes he has in mind?

Mr. Cronin: Quite clearly I cannot answer in specific terms, but we do know

that in that square mile of urban territory quite close to this site there are many persons with highly skilled brains who were never at a disadvantage on finding some way of obtaining considerable profit from any change in the general company structure. I think that the hon. Member must accept that.
There is another serious objection—that such a change would cause confusion. The Gedge Committee suggested that some companies should be allowed to change to no par value shares and some might have nominal value shares. It is a relief to know that the Gedge Committee did not suggest that companies should have both kinds of shares, but that would be a source of immense confusion.
Another matter of importance is a psychological one. The question of dividends is a very vexed question. Obviously if a person invests money he is entitled to a rate of interest, and there can be no objection to dividends as such, but there is an objection to excessive dividends when they cause inflation and impair the morale of the working people of the country. There is a great danger in that.

Sir J. Barlow: Would the hon. Member kindly tell us what excessive dividends are?

Mr. Cronin: With the greatest pleasure. My definition is absolutely different from the definition which we have heard from the Parliamentary Secretary. I think that an excessive dividend is a dividend which is detrimental in general to the economic well-being of the country. That is a simple definition.
There is a danger that if we have no par value shares people will not know exactly what is happening. The present situation is well understood. It is understood by trade unionists and the generality of such people who deal with financial matters on a large scale. If a dividend is 15 per cent. of the nominal value of the share everyone knows what 15 per cent. means. Everyone knows that if next year it is 30 per cent. it has doubled, but, if they hear that the dividend is merely 1s. 11¾d. and then that it is 4s. 7½d. they have no idea of what is happening.

Notice taken that 40 Members were not present—

Mr. Arthur Lewis: On a point of order, Mr. Deputy-Speaker. Is it in order for an hon. Member to call a count when he has paired with another hon. Member?

Mr. Deputy-Speaker (Sir Rhys Hopkin Morris): Those arrangements are not known to me at all.

Mr. James Griffiths: Surely an hon. Member who has paired is not

entitled to call a count in the House, as he has effectively put himself outside the House.

Mr. Deputy-Speaker: Those arrangements are completely outside my jurisdiction.

House counted, and 40 Members not being present, adjourned at eight minutes past One o'clock till Monday next.